<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 1-14344
__________________________
PATINA OIL & GAS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 75-2629477
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1625 Broadway
Denver, Colorado 80202
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (303) 389-3600
Title of class Name of exchange on which listed
---------------------------- -------------------------------------------
Common Stock, $.01 par value New York Stock Exchange
Common Stock Warrants New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ___________.
-----------
There were 16,275,371 shares of common stock outstanding on April 26, 2000.
================================================================================
<PAGE>
PART I. FINANCIAL INFORMATION
Patina Oil & Gas Corporation (the "Company") was formed in 1996 to hold the
assets and operations of Snyder Oil Corporation ("SOCO") in the Wattenberg Field
and to facilitate the acquisition of Gerrity Oil & Gas Corporation in 1996. The
financial statements included herein have been prepared in conformity with
generally accepted accounting principles. The statements are unaudited but
reflect all adjustments which, in the opinion of management, are necessary to
fairly present the Company's financial position and results of operations.
2
<PAGE>
PATINA OIL & GAS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
--------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and equivalents $ 626 $ 263
Accounts receivable 15,694 14,963
Inventory and other 3,030 3,782
--------- ---------
19,350 19,008
--------- ---------
Oil and gas properties, successful efforts method 621,767 630,298
Accumulated depletion, depreciation and amortization (313,732) (323,770)
--------- ---------
308,035 306,528
--------- ---------
Gas facilities and other 3,790 3,942
Accumulated depreciation (2,251) (2,444)
--------- ---------
1,539 1,498
--------- ---------
Other assets, net 1,292 -
--------- ---------
$330,216 $ 327,034
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 14,993 $ 15,545
Accrued liabilities 4,115 2,734
--------- ---------
19,108 18,279
--------- ---------
Senior debt 132,000 134,000
Deferred income taxes - 2,299
Other noncurrent liabilities 13,218 12,477
Commitments and contingencies
Stockholders' equity
Preferred stock, $.01 par, 5,000,000 shares
authorized, 2,383,328 and 1,818,511 shares issued
and outstanding 24 18
Common stock, $.01 par, 100,000,000 shares
authorized, 16,161,310 and 16,311,120 shares
issued and outstanding 161 163
Capital in excess of par value 188,545 175,268
Deferred compensation (279) (209)
Retained earnings (deficit) (22,561) (15,261)
--------- ---------
165,890 159,979
--------- ---------
$330,216 $ 327,034
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
PATINA OIL & GAS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
Three Months Ended March 31,
------------------------------
1999 2000
------- -------
(Unaudited)
Revenues
Oil and gas sales $16,460 $31,274
Other 196 302
------- -------
16,656 31,576
------- -------
Expenses
Direct operating 4,122 5,583
Exploration 13 19
General and administrative 1,353 1,639
Interest and other 2,913 2,561
Depletion, depreciation and amortization 10,273 10,281
------- -------
18,674 20,083
------- -------
Income (loss) before taxes (2,018) 11,493
------- -------
Provision (benefit) for income taxes
Current - -
Deferred - 2,299
------- -------
- 2,299
------- -------
Net income (loss) $(2,018) $ 9,194
======= =======
Basic net income (loss) per common share $ (0.23) $ 0.47
======= =======
Diluted net income (loss) per common share $ (0.23) $ 0.40
======= =======
Basic weighted average shares outstanding 15,777 16,265
======= =======
Diluted weighted average shares outstanding 15,777 21,758
======= =======
4
<PAGE>
PATINA OIL & GAS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Capital in Retained
-------------------- ----------------- Excess of Deferred Earnings
Shares Amount Shares Amount Par Value Compensation (Deficit)
-------- -------- -------- ------ --------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 3,167 $32 15,752 $158 $206,792 $(1,038) $(29,968)
Repurchase of common and preferred (735) (7) (868) (9) (24,674) - (489)
Conversion of preferred into common (168) (2) 489 4 - - -
Issuance of common - - 758 8 3,108 (334) -
Preferred dividends and accretion 119 1 - - 3,319 - (6,251)
Common dividends - - - - - - (812)
Net income - - - - - 1,093 14,959
----- --- ------ ---- -------- ------- --------
Balance, December 31, 1999 2,383 24 16,131 161 188,545 (279) (22,561)
Repurchase of common and preferred (514) (5) (211) (2) (14,881) - (549)
Conversion of preferred into common (51) (1) 148 2 - - -
Issuance of common - - 243 2 1,604 - -
Preferred dividends - - - - - - (1,017)
Common dividends - - - - - - (328)
Net income - - - - - 70 9,194
----- --- ------ ---- -------- ------- --------
Balance, March 31, 2000 (unaudited) 1,818 $18 16,311 $163 $175,268 $ (209) $(15,261)
===== === ====== ==== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
PATINA OIL & GAS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1999 2000
------- --------
(Unaudited)
<S> <C> <C>
Operating activities
Net income (loss) $(2,018) $ 9,194
Adjustments to reconcile net income (loss) to net
cash provided by operations
Exploration expense 13 19
Depletion, depreciation and amortization 10,273 10,281
Deferred income tax provision - 2,299
Deferred compensation expense 174 70
Amortization of deferred credits (225) (365)
Amortization of loan fees - 76
Changes in current and other assets and liabilities
Decrease in
Accounts receivable 165 731
Inventory and other 133 428
Increase (decrease) in
Accounts payable (1,562) 552
Accrued liabilities (2,522) (1,268)
Other assets and liabilities (1,291) (270)
------- --------
Net cash provided by operating activities 3,140 21,747
------- --------
Investing activities
Acquisition, development and exploration (7,850) (8,611)
Other (11) (105)
------- --------
Net cash used by investing activities (7,861) (8,716)
------- --------
Financing activities
Increase (decrease) in indebtedness (1,000) 2,000
Deferred credits 633 -
Issuance of common stock 190 1,503
Repurchase of common stock (220) (2,043)
Repurchase of preferred stock (366) (12,846)
Preferred stock redemption premium - (549)
Preferred dividends (654) (1,131)
Common dividends (161) (328)
------- --------
Net cash used by financing activities (1,578) (13,394)
------- --------
Decrease in cash (6,299) (363)
Cash and equivalents, beginning of period 10,086 626
------- --------
Cash and equivalents, end of period $ 3,787 $ 263
======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
PATINA OIL & GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND NATURE OF BUSINESS
Patina Oil & Gas Corporation (the "Company" or "Patina"), a Delaware
corporation, was formed in 1996 to hold the assets of Snyder Oil Corporation
("SOCO") in the Wattenberg Field and to facilitate the acquisition of Gerrity
Oil & Gas Corporation ("Gerrity"). In conjunction with the Gerrity Acquisition,
SOCO received 14.0 million common shares. In 1997, a series of transactions
eliminated SOCO's ownership in the Company.
The Company's operations currently consist of the acquisition, development,
exploitation and production of oil and natural gas properties in the Wattenberg
Field of Colorado's D-J Basin.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company utilizes the successful efforts method of accounting for its
oil and natural gas properties. Consequently, leasehold costs are capitalized
when incurred. Unproved properties are assessed periodically within specific
geographic areas and impairments in value are charged to expense. Exploratory
expenses, including geological and geophysical expenses and delay rentals, are
charged to expense as incurred. Exploratory drilling costs are initially
capitalized, but charged to expense if and when the well is determined to be
unsuccessful. Costs of productive wells, unsuccessful developmental wells and
productive leases are capitalized and amortized on a unit-of-production basis
over the life of the remaining proved or proved developed reserves, as
applicable. Oil is converted to natural gas equivalents (Mcfe) at the rate of
one barrel to six Mcf. Amortization of capitalized costs has generally been
provided over the entire Wattenberg Field, as the wells are located in the same
reservoirs. No accrual has been provided for estimated future abandonment costs
as management estimates that salvage value will approximate or exceed such
costs.
In 1995, the Company adopted Statement of Financial Accounting Standards
No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets." SFAS
121 requires the Company to assess the need for an impairment of capitalized
costs of oil and gas properties on a field-by-field basis. During 1997, the
Company recorded an impairment of $26.0 million to oil and gas properties as the
estimated future cash flows (undiscounted and without interest charges) expected
to result from these assets and their disposition, largely proven undeveloped
drilling locations, was less than their net book value. The impairment primarily
resulted from low year-end oil and natural gas prices. While no impairments have
been necessary since 1997, changes in underlying assumptions or the amortization
units could result in impairments in the future.
Gas facilities and other
Depreciation of gas gathering and transportation facilities is provided
using the straight-line method over an estimated useful life of five years.
Equipment is depreciated using the straight-line method with estimated useful
lives ranging from three to five years.
Other Assets
Other Assets at December 31, 1999 were comprised of $988,000 of notes
receivable from certain officers and key managers of the Company. See Note (9).
At March 31, 2000, the notes receivable balance of $705,000 was reclassified to
current assets and are included in Inventory and other as these notes are due
within one year. At December 31, 1999, the balance also included net loan
origination fees of $303,000. All remaining loan origination fees were
reclassified to current assets and are included in Inventory and other at March
31, 2000, as they will be fully amortized within the year. The balance of the
net loan origination fees totaled $227,000 at March 31, 2000. These fees are
being amortized on a straight-line basis over 18 months.
7
<PAGE>
Section 29 Tax Credits
The Company has entered into arrangements to monetize its Section 29 tax
credits. These arrangements result in revenue increases of approximately $0.40
per Mcf on production volumes from qualified Section 29 properties. As a
result, additional gas revenues of $580,000 and $898,000 were recognized for the
three months ended March 31, 1999 and 2000, respectively. These arrangements
are expected to increase revenues through December 31, 2002, at which point the
tax credits expire.
Gas Imbalances
The Company uses the sales method to account for gas imbalances. Under this
method, revenue is recognized based on the cash received rather than the
Company's proportionate share of gas produced. Gas imbalances at December 31,
1999 and March 31, 2000 were insignificant.
Financial Instruments
The book value and estimated fair value of cash and equivalents was
$626,000 and $263,000 at December 31, 1999 and March 31, 2000. The book value
and estimated fair value of the senior debt was $132.0 million and $134.0
million at December 31, 1999 and March 31, 2000. The book value of these assets
and liabilities approximates fair value due to the short maturity or floating
rate structure of these instruments.
From time to time, the Company enters into commodity derivatives contracts
and fixed-price physical contracts to manage its exposure to oil and gas price
volatility. Commodity derivatives contracts, which are generally placed with
major financial institutions or with counterparties of high credit quality that
the Company believes are minimal credit risks, may take the form of futures
contracts, swaps or options. The oil and gas reference prices of these
commodity derivatives contracts are based upon oil and natural gas futures which
have a high degree of historical correlation with actual prices received by the
Company. The Company accounts for its commodity derivatives contracts using the
hedge (deferral) method of accounting. Under this method, realized gains and
losses on such contracts are deferred and recognized as an adjustment to oil and
gas sales revenues in the period in which the physical product to which the
contracts relate, is actually sold. Gains and losses on commodity derivatives
contracts that are closed before the hedged production occurs are deferred until
the production month originally hedged.
The Company entered into various swap contracts for oil (NYMEX based) for
the first quarter of 2000 and recognized a loss of $2.4 million related to these
swap contracts. No swap contracts were entered into for the first quarter of
1999.
The Company entered into various CIG and PEPL index based swap contracts
for natural gas for the first quarters of 1999 and 2000. The Company recognized
gains of $490,000 in first quarter of 1999 and $231,000 in first quarter of 2000
related to these swap contracts.
As of March 31, 2000, the Company had entered into swap contracts for oil
(NYMEX based) for approximately 3,350 barrels of oil per day for the remainder
of 2000 at fixed prices ranging from $20.00 to $26.18 per barrel and 1,050
barrels of oil per day for 2001 at fixed prices ranging from $23.05 to $23.85
per barrel. Certain swap contracts for oil (NYMEX based) contain "knock-out"
provisions. If the average price of NYMEX WTI crude oil falls below the "knock-
out" price for the contract month, the swaps will be considered "knocked-out"
and no payment will be made to the Company for the applicable month. These
swaps are summarized in the table below. The overall weighted average hedged
price for the swap contracts is $21.88 per barrel for the remainder of 2000 and
$23.28 per barrel for 2001 (NYMEX based). The unrecognized losses on these
contracts totaled $3.6 million based on estimated market values at March 31,
2000.
As of March 31, 2000, the Company had entered into natural gas swap
contracts for approximately 28,300 MMBtu's per day for the remainder of 2000 at
fixed prices ranging from $2.06 to $2.92 per MMBtu and 10,000 MMBtu's per day
for the first quarter of 2001 at fixed prices ranging from $2.55 to $2.95 per
MMBtu on CIG index based swap contracts. The Company also has entered into
physical natural gas sale contracts for the delivery of approximately 12,200
MMBtu's per day for the remainder of 2000 at prices ranging from $2.29 to $3.04
per MMBtu and 2,500 MMBtu's per day for the first quarter of 2001 at prices
ranging from $2.67 to $3.08 per MMBtu. The weighted average daily volumes and
prices for these natural gas swaps and physical contracts are 40,600 MMBtu's per
day at $2.25 per MMBtu for the remainder of 2000
8
<PAGE>
and 12,500 MMBtu's per day at $2.76 per MMBtu for the first quarter of 2001. The
unrecognized losses on the swap contracts totaled $3.2 million based on
estimated market values at March 31, 2000.
As of April 26, 2000, the Company was a party to the following fixed price
swap and physical arrangements summarized by quarter:
<TABLE>
<CAPTION>
Oil (NYMEX)
-------------------------------------------------------------------
SWAP SWAP "KNOCK-OUT" COMBINED
------- ------------------------------- ----------------
Daily Daily "Knock-out" Daily
Volume Volume Price Volume
Time Period (Bbl) $/Bbl (Bbl) $/Bbl $/Bbl (Bbl) $/Bbl
- ----------- ------- ------- ------- ------- ------------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
04/01/00 - 06/30/00........ 1,500 $21.31 2,000 $21.73 16.00-17.00 3,500 $21.55
07/01/00 - 09/30/00........ 2,000 22.81 1,500 21.40 16.00-17.00 3,500 22.21
10/01/00 - 12/31/00........ 750 21.56 2,350 22.00 16.00-17.00 3,100 21.89
01/01/01 - 03/31/01........ - - 1,500 23.41 17.00 1,500 23.41
04/01/01 - 06/30/01........ - - 1,250 23.29 17.00 1,250 23.29
07/01/01 - 09/30/01........ - - 750 23.13 17.00 750 23.13
10/01/01 - 12/31/01........ - - 750 23.13 17.00 750 23.13
</TABLE>
<TABLE>
<CAPTION>
Natural Gas
------------------------------------------------------
CIG SWAP PHYSICAL COMBINED
---------------- ----------------- -----------------
Daily Daily Daily
Volume Volume Volume
Time Period (MMBtu) $/MMBtu (MMBtu) $/MMBtu (MMBtu) $/MMBtu
- ----------- ------ ------- ------ ------- -------- -------
<S>........................ <C> <C> <C> <C> <C> <C>
04/01/00 - 06/30/00........ 36,600 $ 2.14 15,000 $ 2.36 51,600 $2.20
07/01/00 - 09/30/00........ 31,700 2.12 15,000 2.36 46,700 2.20
10/01/00 - 12/31/00........ 16,800 2.40 6,700 2.52 23,500 2.43
01/01/01 - 03/31/01........ 10,000 2.73 2,500 2.87 12,500 2.76
</TABLE>
In October 1998, the Company entered into an interest rate swap contract for
a two-year period, extendable for one additional year at the option of the third
party. The contract is for $30.0 million principal with a fixed interest rate
of 4.57% payable by the Company and the variable interest rate, the three-month
LIBOR, payable by the third party. The difference between the Company's fixed
rate of 4.57% and the three-month LIBOR rate, which is reset every 90 days, is
received or paid by the Company in arrears every 90 days. The Company received
$184,000 in 1999 pursuant to this contract and $123,000 in the first quarter of
2000. The unrecognized gain on this contract totaled $275,000 based on estimated
market values at March 31, 2000.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded on the
balance sheet as either an asset or liability measured at its fair value. It
also requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate, and assess the effectiveness
of transactions that receive hedge accounting. SFAS 133 is effective for fiscal
years beginning after June 15, 2000. The Company has not yet quantified the
impacts of adopting SFAS 133 on its financial statements and has not determined
the timing of, or method of, adoption of SFAS 133. However, SFAS 133 could
increase volatility in earnings and other comprehensive income.
9
<PAGE>
Stock Options and Awards
The Company accounts for its stock-based compensation plans under the
principles prescribed by the Accounting Principles Board's Opinion No. 25 ("APB
No. 25"), "Accounting for Stock Issued to Employees." Accordingly, stock options
awarded under the Employee Plan and the Non-Employee Directors Plan are
considered to be "noncompensatory" and do not result in recognition of
compensation expense. However, the restricted stock awarded under the Restricted
Stock Plan is considered to be "compensatory" and the Company recognized
$174,000 and $70,000 of non-cash general and administrative expenses for the
three months ended March 31, 1999 and 2000, respectively. See Note (6).
Per Share Data
The Company uses the weighted average number of shares outstanding in
calculating earnings per share data. When dilutive, options and warrants are
included as share equivalents using the treasury stock method and are included
in the calculation of diluted per share data. Common stock issuable upon
conversion of convertible preferred securities is also included in the
calculation of diluted per share data if their effect is dilutive.
Risks and Uncertainties
Historically, the market for oil and natural gas has experienced significant
price fluctuations. Prices for natural gas in the Rocky Mountain region have
been particularly volatile in recent years. The price fluctuations can result
from variations in weather, levels of production in the region, availability of
transportation capacity to other regions of the country and various other
factors. Increases or decreases in prices received could have a significant
impact on the Company's future results.
Other
All liquid investments with an original maturity of three months or less are
considered to be cash equivalents. Certain amounts in prior period consolidated
financial statements have been reclassified to conform with the current
classifications. The consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries.
All significant intercompany balances and transactions have been eliminated
in consolidation. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
In the opinion of management, those adjustments to the financial statements
(all of which are of a normal and recurring nature) necessary to present fairly
the financial position and results of operations have been made. These interim
financial statements should be read in conjunction with the Company's Annual
Report on Form 10-K for the year ended December 31, 1999.
10
<PAGE>
(3) OIL AND GAS PROPERTIES
The cost of oil and gas properties at December 31, 1999 and March 31, 2000
included approximately $225,000 and $120,000 in net unevaluated leasehold costs
related to a prospect in Wyoming. Acreage is generally held for exploration,
development or resale and its value, if any, is excluded from amortization. The
following table sets forth costs incurred related to oil and gas properties:
Three
Year Ended Months Ended
December 31, March 31,
1999 2000
-------- --------
(In thousands)
Acquisition.................... $ 2,215 $ 120
Development.................... 21,122 8,472
Exploration and other.......... 666 19
-------- --------
$24,003 $ 8,611
======== ========
(4) INDEBTEDNESS
The following indebtedness was outstanding on the respective dates:
December 31, March 31,
1999 2000
-------- --------
(In thousands)
Bank facilities................ $132,000 $134,000
Less current portion........... - -
-------- --------
Senior debt, net............... $132,000 $134,000
======== ========
In July 1999, in conjunction with the redemption of the 11.75% Senior
Subordinated Notes, the Company entered into a Second Amended and Restated Bank
Credit Agreement (the "Credit Agreement"). The Credit Agreement is a revolving
credit facility in an aggregate amount up to $200.0 million. The amount
available under the facility is adjusted semi-annually, each May 1 and November
1, and equaled $175.0 million at March 31, 2000.
The Company may elect that all or a portion of the credit facility bear
interest at a rate equal to: (i) the higher of (a) the prime rate or (b) the
Federal Funds Effective Rate plus .5%, or (ii) the rate at which Eurodollar
deposits for one, two, three or six months (as selected by the Company) are
offered in the interbank Eurodollar market plus a margin which fluctuates from
1.00% to 1.50%, determined by a debt to EBITDA ratio. The average interest rate
under the facility approximated 7.4% during the first quarter of 2000 and was
7.3% at March 31, 2000.
In October 1998, the Company entered into an interest rate swap contract
for a two-year period, extendable for one additional year at the option of the
third party. The contract is for $30.0 million principal with a fixed interest
rate of 4.57% payable by the Company and the variable interest rate, the three-
month LIBOR, payable by the third party. The difference between the Company's
fixed rate of 4.57% and the three-month LIBOR rate, which is reset every 90
days, is received or paid by the Company in arrears every 90 days. The Company
received $184,000 in 1999 pursuant to this contract and $123,000 in the first
quarter of 2000.
The Credit Agreement contains certain financial covenants, including but
not limited to a maximum total debt to EBITDA ratio and a minimum current ratio.
The Credit Agreement also contains certain negative covenants, including but not
limited to restrictions on indebtedness; certain liens; guaranties, speculative
derivatives and other similar obligations; asset dispositions; dividends, loans
and advances; creation of subsidiaries; investments; leases; acquisitions;
mergers; changes in fiscal year; transactions with affiliates; changes in
business conducted; sale and leaseback and operating lease transactions; sale of
receivables; prepayment of other indebtedness; amendments to principal
documents; negative pledge causes; issuance of securities; and non-speculative
commodity hedging. Borrowings under the Credit Agreement mature in
11
<PAGE>
July 2003, but may be prepaid at anytime. The Company has periodically
negotiated extensions of the Credit Agreement; however, there is no assurance
the Company will be able to do so in the future. The Company had a restricted
payment basket, as defined in the Credit Agreement, of $8.0 million as of March
31, 2000, which may be used to repurchase common stock, preferred stock and
warrants and pay dividends on its common stock.
Scheduled maturities of indebtedness for the next five years are zero for
2001, 2002, and $134.0 million in 2003. Management intends to review the
facility and extend the maturity on a regular basis; however, there can be no
assurance that the Company will be able to do so. Cash payments for interest
totaled $4.6 million and $2.5 million during the first quarters of 1999 and
2000, respectively.
(5) STOCKHOLDERS' EQUITY
A total of 100,000,000 common shares, $0.01 par value, are authorized of
which 16,311,120 were issued and outstanding at March 31, 2000. The common stock
is listed on the New York Stock Exchange. Prior to December 1997, no dividends
had been paid on common stock. A quarterly cash dividend of $0.01 per common
share was initiated in December 1997 and was continued through the third quarter
of 1999. The common dividend was increased to $0.02 per common share in the
fourth quarter of 1999 and continued through the first quarter of 2000. The
following is a schedule of the changes in the Company's outstanding shares of
common stock for the following periods:
<TABLE>
<CAPTION>
Twelve Three
Months Ended Months Ended
December 31, 1999 March 31, 2000
------------------ ---------------
<S> <C> <C>
Beginning common shares outstanding.......... 15,752,400 16,131,300
Exercise of stock options.................... 226,300 69,800
Shares issued under Stock Purchase Plan...... 92,900 -
Shares issued in lieu of salaries & bonuses.. 164,800 128,300
Shares issued for directors fees............. 8,600 1,200
Conversion of 7.125% preferred............... 488,800 148,000
Shares issued to deferred compensation plan.. 35,200 9,800
Stock grant (vested)......................... 168,600 33,300
401(K) profit sharing contribution........... 61,300 -
Shares repurchased and retired............... (867,600) (210,600)
---------- ----------
Ending common shares outstanding............. 16,131,300 16,311,100
========== ==========
</TABLE>
At March 31, 2000, the Company had 2,919,451 $12.50 common stock warrants
outstanding. These warrants are exercisable at $12.50 for one share of common
stock and expire in May 2001. The common stock warrants are listed on the New
York Stock Exchange.
A total of 5,000,000 preferred shares, $0.01 par value, are authorized. At
March 31, 2000, the Company had 1,818,511 shares of 8.50% preferred stock
outstanding with an aggregate liquidation preference of $45.5 million. Each
share of the 8.50% preferred stock is convertible into common stock at any time
at $9.50 per share or 2.6316 common shares. The 8.50 % preferred stock pays
quarterly cash dividends, when declared by the Board of Directors. The 8.50%
preferred stock is redeemable at the option of the Company at any time after
October 2000 at 106% of its stated value declining by 2% per annum thereafter.
The liquidation preference is $25.00 per share, plus accrued and unpaid
dividends. The 8.50% preferred stock is privately held. Holders of the 8.50%
preferred stock are generally entitled to vote with the common stock, based upon
the number of shares of common stock into which the shares of 8.50% preferred
stock are convertible. The Company paid $903,000 and $966,000 in dividends
during the first quarters of 1999 and 2000, respectively. Dividends through
October 21, 1999 were paid in kind ("PIK"). As such, the Company issued 36,097
of additional 8.50% preferred shares as PIK dividends in first quarter of 1999.
Dividends subsequent to October 21, 1999 were paid in cash.
12
<PAGE>
In December 1999, the Company called for redemption the remainder of its
7.125% preferred stock. The effective date of the redemption was January 21,
2000. Of the 564,800 preferred shares called, 51,000 were converted into 148,000
shares of common stock and the remaining 513,800 were redeemed for $13.4 million
in cash. The cash redemption was financed with borrowings under the bank credit
facility. The Company paid $654,000 and $600,000 in preferred dividends during
the first quarters of 1999 and 2000, respectively. Included in the first quarter
2000 payment was $549,000 of redemption premium paid to shareholders that
elected to redeem their preferred stock for cash on January 21, 2000.
The Company adopted Statement of Financial Accounting Standards No. 128
("SFAS 128"), "Earnings per Share" during 1997. SFAS 128 specifies computation,
presentation and disclosure requirements for earnings per share for entities
with publicly held common stock or potential common stock.
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------------------------
1999 2000
------------------------ ------------------------
Net Common Per Net Common Per
Loss Shares Share Income Shares Share
---- ------ ------ ------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Basic net income (loss) $(2,018) 15,777 $9,194 16,265
7.125% preferred stock dividends (648) - (600) -
8.50% preferred stock dividends (903) - (966) -
Preferred stock accretion (83) - - -
------- ------ ------ ------
Basic net income (loss) attributable
to common stock (3,652) 15,777 $(0.23) 7,628 16,265 $0.47
====== =====
Effect of dilutive securities:
7.125% preferred stock - - - -
8.50% preferred stock - - 966 4,786
Stock options - - - 568
Stock grant - - - 139
$12.50 common stock warrants - - - -
------- ------ ------ ------
Diluted net income (loss) attributable
to common stock $(3,652) 15,777 $(0.23) $ 8,594 21,758 $0.40
======= ====== ====== ======= ====== =====
</TABLE>
The potential common stock equivalents of the 7.125% and 8.50% preferred
stock, $12.50 common stock warrants and stock options were anti-dilutive for the
first quarter of 1999.
(6) EMPLOYEE BENEFIT PLANS
401(k) Savings
The Company has a 401(k) profit sharing and savings plan (the "401(k)
Plan"). Eligible employees may make voluntary contributions to the 401(k) Plan.
Employee contributions are limited as specified in the 401(k) Plan. The Company
may, at its discretion, make additional matching or profit sharing contributions
to the 401(k) Plan. The Company has historically made profit sharing
contributions to the 401(k) Plan, which totaled $483,000 for 1999. The 1999
profit sharing contribution was made in shares of the Company's common stock
(61,300 shares).
Stock Purchase Plan
In 1998, the Company adopted and the stockholders approved a stock purchase
plan ("Stock Purchase Plan"). Pursuant to the Stock Purchase Plan, officers,
directors and certain managers are eligible to purchase shares of common stock
at prices ranging from 50% to 85% of the closing price of the stock on the
trading day prior to the date of purchase ("Closing Price"). In addition,
employee participants may be granted the right to purchase shares pursuant to
the Stock Purchase Plan with all or a part of their salary and bonus. A total
of 500,000 shares of common stock are reserved for possible purchase under the
Stock Purchase Plan. In May 1999, an amendment to the Stock Purchase Plan was
approved by the stockholders allowing for the annual renewal of the 500,000
shares of common stock reserved for possible purchase under the Plan. In 1999,
the Board of Directors approved 136,300 common shares (exclusive of shares
available for
13
<PAGE>
purchase with participants' salaries and bonuses) for possible purchase by
participants at 75% of the Closing Price during the current Plan Year as defined
in the Stock Purchase Plan. As of December 31, 1999, participants had purchased
92,900 shares of common stock at prices ranging from $5.06 to $8.63 per share
($3.80 to $6.47 net price per share), resulting in cash proceeds to the Company
of $395,000. The Company recorded non-cash general and administrative expenses
of $53,000 associated with these purchases in 1999. As of March 31, 2000,
participants had purchased 85,800 of common stock with participant's 1999
bonuses at $9.19 per share ($6.89 net price per share). No other purchases have
been made under the Stock Purchase Plan during the three months ended, March 31,
2000.
Stock Option and Award Plans
In 1996, the shareholders adopted a stock option plan for employees
("Employee Plan") providing for the issuance of options at prices not less than
fair market value. Options to acquire the greater of up to three million shares
of common stock or 10% of outstanding diluted common shares may be outstanding
at any given time. The specific terms of grant and exercise are determinable by
a committee of independent members of the Board of Directors. A summary by year
of stock options granted under the Employee Plan is summarized below:
Weighted
Range Average
of Exercise Exercise
Options Price Per Price Per
Year Granted Common Share Common Share
- ---- ------- ------------ ------------
1996....................... 512,000 $7.75 $7.75
1997....................... 521,000 $8.75 - $9.88 $9.75
1998....................... 614,000 $6.56 - $7.19 $7.03
1999....................... 630,000 $2.94 - $9.13 $3.54
2000....................... 494,000 $9.19 $9.19
The options generally vest over a three-year period (30%, 60%, 100%) and
expire five years from the date of grant, except for 250,000 five-year options
which were fully vested at the date of grant in October 1997 at an exercise
price of $9.88.
In 1996, the shareholders adopted a stock grant and option plan (the
"Directors' Plan") for non-employee Directors. The Directors' Plan provides for
each non-employee Director to receive common shares having a market value equal
to $2,500 quarterly in payment of one-half their retainer. A total of 8,600
shares were issued in 1999 and 1,200 were issued in the first quarter of 2000.
It also provides for 5,000 options to be granted annually to each non-employee
Director. A summary by year of stock options granted under the Directors' Plan
is summarized below:
Weighted
Range Average
of Exercise Exercise
Options Price Per Price Per
Year Granted Common Share Common Share
- ---- ------- -------------- ------------
1996..................... 20,000 $7.75 $7.75
1997..................... 30,000 $8.63 - $10.31 $9.19
1998..................... 35,000 $7.19 - $7.75 $7.59
1999..................... 30,000 $2.94 - $5.13 $4.76
The options generally vest over a three-year period (30%, 60%, 100%) and
expire five years from the date of grant.
In 1997, the shareholders approved a special stock grant and purchase plan
for certain officers and managers ("Management Investors") in conjunction with
the redistribution of SOCO's ownership in the Company. The plan provided for
the grant of certain restricted common shares to the Management Investors.
These shares vest at 25% per year on January 1, 1998, 1999, 2000 and 2001. The
non-vested granted common shares have been recorded as Deferred Compensation in
the equity section of the accompanying consolidated balance sheets. The
Management Investors simultaneously purchased additional common shares from the
Company at $9.875 per share. A portion of the purchase was financed by the
Company. See Note (9).
14
<PAGE>
In conjunction with the appointment of a President in March 1998, the
President was included in the stock grant and purchase plans. He was granted
100,000 restricted common shares that vest at 33% per year in March 1999, 2000
and 2001. The non-vested granted common shares have been recorded as Deferred
Compensation in the equity section of the accompanying consolidated balance
sheets. The President simultaneously purchased 100,000 common shares from the
Company at $6.875 per share. A portion of this purchase ($584,000) was financed
by the Company. See Note (9).
In April 1999, the Chief Executive Officer was granted 100,000 restricted
shares of common stock and was simultaneously granted options to purchase
300,000 common shares in consideration of his voluntary reduction in cash
salary, waiver of any 1998 bonus and other compensation arrangements. The shares
vested ratably throughout 1999.
The Company recognized $174,000 and $70,000 of non-cash general and
administrative expenses for quarters ended March 31, 1999 and 2000, with respect
to the stock grants.
(7) FEDERAL INCOME TAXES
A reconciliation of the federal statutory rate to the Company's effective
rate as they apply to the provision (benefit) for the three months ended March
31, 1999 and 2000 follows:
1999 2000
---- ----
Federal statutory rate....................... 35% 35%
Utilization of net deferred tax asset........ (35%) (15%)
----- -----
Effective income tax rate.................... - 20%
===== =====
For tax purposes, the Company had regular net operating loss carryforwards
of approximately $88.4 million and alternative minimum tax ("AMT") loss
carryforwards of approximately $42.0 million at December 31, 1999. Utilization
of the regular and AMT net operating loss carryforwards will be limited to
approximately $12.5 million per year as a result of the redistribution of SOCO's
majority ownership in the Company in October 1997. In addition, utilization of
$31.9 million regular net operating loss carryforwards and $31.6 million AMT
loss carryforwards will be limited to $5.2 million per year as a result of the
Gerrity acquisition in 1996. These carryforwards expire from 2006 through 2018.
At December 31, 1999, the Company had alternative minimum tax credit
carryforwards of $650,000 that are available indefinitely. No cash payments were
made by the Company for federal taxes during 1999 and the first quarter of 2000.
(8) MAJOR CUSTOMERS
During the three months ended March 31, 1999 and 2000, Duke Energy Field
Services, Inc. accounted for 36% and 33%, BP Amoco Production Company accounted
for 15% and 26% and Aurora Natural Gas, LLC accounted for 17% and 6% of
revenues, respectively. Management believes that the loss of any individual
purchaser would not have a long-term material adverse impact on the financial
position or results of operations of the Company.
(9) RELATED PARTY
In October 1997, certain officers and managers purchased common shares at
$9.875 per share from the Company. A portion of this original purchase was
financed by the Company through the issuance of 8.50% recourse promissory notes.
The remaining notes balance at March 31, 2000 of $705,000 are secured by the
common stock purchased and additional common shares granted to the respective
officers and managers. Interest is due annually and the notes mature in January
2001. These notes have been reflected as current assets and are included in
Inventory and other in the accompanying consolidated balance sheets.
15
<PAGE>
In conjunction with the appointment of the new President in March 1998, the
President purchased 100,000 shares of common stock at $6.875 per share. The
Company loaned him $584,000, or 85% of the purchase price, represented by a
recourse promissory note that bears interest at 8.50% per annum payable each
March 31 until the note is paid. The note matures in March 2001 and is secured
by all of the shares purchased and granted to him (100,000 shares) in connection
with his employment with the Company. In consideration of the depressed stock
price and overall lower year-end bonuses, the interest due as of March 31, 1999
under the Management Investor's and President's notes was forgiven by the
Company in April 1999. Interest on the notes due March 31, 2000 was paid in
full. This note has been reflected as a current asset and included in Inventory
and other in the accompanying consolidated balance sheets
(10) COMMITMENTS AND CONTINGENCIES
The Company leases office space and certain equipment under non-cancelable
operating leases. Future minimum lease payments under such leases approximate
$500,000 per year from 2000 through 2001. The Company is a party to various
other lawsuits incidental to its business, none of which are anticipated to have
a material adverse impact on its financial position or results of operations.
16
<PAGE>
PATINA OIL & GAS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Three months ended March 31, 2000 compared to three months ended March 31, 1999.
Revenues for the first quarter of 2000 totaled $31.6 million, a 90% increase
from the prior year period. The increase was due primarily to increases in
production and higher oil and gas prices. Net income for the first quarter of
2000 totaled $9.2 million compared to a net loss of $2.0 million in the first
quarter of 1999. The increase was attributed to higher production, cost
efficiencies and recovering oil and gas prices.
Average daily oil and gas production for the first quarter totaled 4,607
barrels and 89.5 MMcf (117.1 MMcfe), an increase of 15% on an equivalent basis
from the same period in 1999. During the quarter, 18 wells were drilled or
deepened and 34 refracs and one recompletion were performed, compared to 10 new
wells or deepenings and 23 refracs and recompletions in same period in 1999. The
Company's current development activity, the benefits of certain minor
acquisitions and continued success with the production enhancement program has
resulted in increasing production for seven consecutive quarters. Based upon a
$35.0 million capital budget for 2000, the Company expects production to
continue to increase in the remainder of the year. The decision to increase
development activity is heavily dependent on the prices being received for
production.
Average oil prices increased 85% from $11.65 per barrel in the first quarter
of 1999 to $21.53 in 2000. Average natural gas prices increased 60% from $1.71
per Mcf for the first quarter of 1999 to $2.73 in 2000. The average oil price
includes hedging losses of $2.4 million or $5.76 per barrel in the first quarter
of 2000. The average natural gas prices include hedging gains of $490,000 or
$0.07 per Mcf and $231,000 or $0.03 per Mcf for the first quarters of 1999 and
2000, respectively. Direct operating expenses, consisting of lease operating and
production taxes, totaled $5.6 million or $0.53 per Mcfe for the first quarter
of 2000 compared to $4.1 million or $0.44 per Mcfe in the prior year period.
The increase in direct operating expenses in the first quarter of 2000 was
attributed to a $1.1 million rise in production taxes as a result of higher
average oil and gas prices.
General and administrative expenses, net of third party reimbursements, for
the first quarter of 2000 totaled $1.6 million, a $286,000 or 21% increase from
the same period in 1999. The increase in expense is primarily due to the
Company receiving lesser operating fee reimbursements from third party working
interest owners that the Company offsets against general and administrative
expenses. The lower operating fees are a result of the Company increasing its
working interest ownership in its oil and gas properties as a result of a
property exchange with HS Resources and other minor interest acquisitions in
late 1999. Included in general and administrative expenses is $174,000 and
$70,000 for the three months ended March 31, 1999 and 2000 of non-cash expenses
related to the common stock grants awarded to officers and managers of the
Company in conjunction with the redistribution of SOCO's ownership of the
Company in 1997.
Interest and other expenses fell to $2.6 million in the first quarter of
2000, a decrease of $352,000 or 12% from the prior year period. Interest expense
decreased as a result of lower average debt balances and lower interest rates on
the Company's debt due to the redemption of the 11.75% Subordinated Notes on
July 15, 1999. The redemption was financed with borrowings under the bank credit
facility. The Company's average interest rate for the first quarter of 2000 was
7.4% compared to 9.1% in the first quarter of 1999.
Depletion, depreciation and amortization expense for first quarter of 2000
totaled $10.3 million, approximately the same level as in 1999. Depletion
expense totaled $10.0 million or $0.94 per Mcfe for first quarter of 2000
compared to $10.0 million or $1.08 per Mcfe for 1999. Although there was a 15%
increase in oil and gas production over the first quarter of 1999, total
depletion expense remained constant due to a decrease in the depletion rate. The
depletion rate was lowered in the second and fourth quarters of 1999 in
conjunction with the completion of the mid-year and year-end reserve reports
reflecting additional oil and gas reserves due primarily to the identification
of additional refrac projects and drilling locations, upward revisions due to
over-performance and the increase in oil and gas prices. Depreciation and
amortization expense for the three months ended March 31, 2000 totaled $242,000
or $0.02 per Mcfe compared to $230,000 or $0.02 per Mcfe for same period in
1999.
17
<PAGE>
Development, Acquisition and Exploration
During the first quarter of 2000, the Company incurred $8.6 million in
capital expenditures, including $8.5 million of development expenditures.
During the period, the Company successfully drilled or deepened 18 wells,
refraced 34 wells, and recompleted one well. The Company anticipates incurring
approximately $35.0 million on development expenditures during 2000. The
decision to increase or decrease development activity is heavily dependent on
the prices being received for production.
Financial Condition and Capital Resources
At March 31, 2000, the Company had $327.0 million of assets. Total
capitalization was $294.0 million, of which 54% was represented by stockholders'
equity and 46% by bank debt. During the first quarter of 2000, net cash
provided by operations totaled $21.7 million, as compared to $3.1 million in the
same period in 1999 ($21.6 million and $8.2 million prior to changes in working
capital, respectively). At March 31, 2000, there were no significant
commitments for capital expenditures. The Company anticipates 2000 capital
expenditures, exclusive of acquisitions, to approximate $35.0 million. The level
of these and other future expenditures is largely discretionary, and the amount
of funds devoted to any particular activity may increase or decrease
significantly, depending on available opportunities and market conditions. The
Company plans to finance its ongoing development, acquisition and exploration
expenditures and additional equity security repurchases using internal cash
flow, proceeds from asset sales and bank borrowings. In addition, joint ventures
or future public and private offerings of debt or equity securities may be
utilized.
In July 1999, in conjunction with the redemption of the 11.75% Senior
Subordinated Notes, the Company entered into a Second Amended and Restated Bank
Credit Agreement (the "Credit Agreement"). The Credit Agreement is a revolving
credit facility in an aggregate amount up to $200.0 million. The amount
available under the facility is adjusted semi-annually, each May 1 and November
1, and equaled $175.0 million at March 31, 2000.
The Credit Agreement contains certain financial covenants, including but not
limited to a maximum total debt to EBITDA ratio and a minimum current ratio. The
Credit Agreement also contains certain negative covenants, including but not
limited to restrictions on indebtedness; certain liens; guaranties, speculative
derivatives and other similar obligations; asset dispositions; dividends, loans
and advances; creation of subsidiaries; investments; leases; acquisitions;
mergers; changes in fiscal year; transactions with affiliates; changes in
business conducted; sale and leaseback and operating lease transactions; sale of
receivables; prepayment of other indebtedness; amendments to principal
documents; negative pledge causes; issuance of securities; and non-speculative
commodity hedging. Borrowings under the Credit Agreement mature in July 2003,
but may be prepaid at anytime. The Company has periodically negotiated
extensions of the Credit Agreement; however, there is no assurance the Company
will be able to do so in the future. The Company had a restricted payment
basket, as defined by the Credit Agreement, of $8.0 million as of March 31,
2000, which may be used to repurchase common stock, preferred stock and warrants
and pay dividends on its common stock.
The Company may elect that all or a portion of the credit facility bear
interest at a rate equal to: (i) the higher of (a) the prime rate or (b) the
Federal Funds Effective Rate plus .5%, or (ii) the rate at which Eurodollar
deposits for one, two, three or six months (as selected by the Company) are
offered in the interbank Eurodollar market plus a margin which fluctuates from
1.00% to 1.50%, determined by a debt to EBITDA ratio. The average interest rate
under the facility approximated 7.4% during the first quarter of 2000 and was
7.3% at March 31, 2000.
In October 1998, the Company entered into an interest rate swap contract for
a two-year period, extendable for one additional year at the option of the third
party. The contract is for $30.0 million principal with a fixed interest rate
of 4.57% payable by the Company and the variable interest rate, the three-month
LIBOR, payable by the third party. The difference between the Company's fixed
rate of 4.57% and the three-month LIBOR rate, which is reset every 90 days, is
received or paid by the Company in arrears every 90 days. The Company received
$184,000 in 1999 pursuant to this contract and $123,000 in the first quarter of
2000.
18
<PAGE>
The Company had $74.0 million of 11.75% Senior Subordinated Notes due July
15, 2004 outstanding on March 31, 1999. The Notes had been reflected in the
financial statements at a book value of 105.875% of their principal amount, the
initial call price ($69.9 million of principal amount outstanding as of March
31, 1999). The Notes became redeemable on July 15, 1999. The Company redeemed
all of the Notes at the call price of 105.875% on July 15, 1999. The redemption
was financed with borrowings under the bank credit facility.
In conjunction with the appointment of a President in March 1998, the
President purchased 100,000 shares of common stock at $6.875 per share. The
Company loaned him $584,000, or 85% of the purchase price, represented by a
recourse promissory note that bears interest at 8.50% per annum payable each
March 31 until the note is paid. The note matures in March 2001 and is secured
by the 200,000 shares purchased and granted to him in connection with his
employment with the Company.
The Company has entered into arrangements to monetize its Section 29 tax
credits. These arrangements result in revenue increases of approximately $0.40
per Mcf on production volumes from qualified Section 29 properties. As a
result, additional gas revenues of $580,000 and $898,000 were recognized for the
three months ended March 31, 1999 and 2000, respectively. These arrangements
are expected to increase revenues through December 31, 2002, at which point the
tax credits expire.
The Company's primary cash requirements will be to finance acquisitions,
development expenditures, repayment of indebtedness, and general working capital
needs. However, future cash flows are subject to a number of variables,
including the level of production and oil and natural gas prices, and there can
be no assurance that operations and other capital resources will provide cash in
sufficient amounts to maintain planned levels of capital expenditures or that
increased capital expenditures will not be undertaken.
The Company believes that borrowings available under its Credit Agreement,
projected operating cash flows and the cash on hand will be sufficient to cover
its working capital, capital expenditures, planned development activities and
debt service requirements for the next 12 months. In connection with
consummating any significant acquisition, additional debt or equity financing
will be required, which may or may not be available on terms that are acceptable
to the Company.
Certain Factors That May Affect Future Results
Statements that are not historical facts contained in this report are
forward-looking statements that involve risks and uncertainties that could cause
actual results to differ from projected results. Such statements address
activities, events or developments that the Company expects, believes, projects,
intends or anticipates will or may occur, including such matters as future
capital development and exploration expenditures (including the amount and
nature thereof), drilling, deepening or refracing of wells, reserve estimates
(including estimates of future net revenues associated with such reserves and
the present value of such future net revenues), future production of oil and
natural gas, business strategies, expansion and growth of the Company's
operations, cash flow and anticipated liquidity, prospect development and
property acquisition, obtaining financial or industry partners for prospect or
program development, or marketing of oil and natural gas. Factors that could
cause actual results to differ materially ("Cautionary Disclosures") are
described, among other places, in the Marketing, Competition, and Regulation
sections in the 1999 Form 10-K and under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations." Without
limiting the Cautionary Disclosures so described, Cautionary Disclosures
include, among others: general economic conditions, the market price of oil and
natural gas, the risks associated with exploration, the Company's ability to
find, acquire, market, develop and produce new properties, operating hazards
attendant to the oil and natural gas business, uncertainties in the estimation
of proved reserves and in the projection of future rates of production and
timing of development expenditures, the strength and financial resources of the
Company's competitors, the Company's ability to find and retain skilled
personnel, climatic conditions, labor relations, availability and cost of
material and equipment, environmental risks, the results of financing efforts,
and regulatory developments. All written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by the Cautionary Disclosures. The Company
disclaims any obligation to update or revise any forward-looking statement to
reflect events or circumstances occurring hereafter or to reflect the occurrence
of anticipated or unanticipated events.
19
<PAGE>
Year 2000 Issues
The Company is aware of the issues associated with the programming code in
many existing computer systems and devices with embedded technology. The "Year
2000" problem concerns the inability of information and technology-based
operating systems to properly recognize and process date-sensitive information
beyond December 31, 1999. Since 1997, the Company has been upgrading its
information systems with Year 2000 compliant software and hardware. The
conversion from calendar year 1999 to calendar year 2000 occurred without any
disruption to the Company's operations or business systems. The Company will
continue to monitor any Year 2000 issues, both internally and with third party
dependencies with respect to vendors, suppliers, customers and other significant
business relationships. Such monitoring will be on going and encompassed in
normal operations. The total costs incurred to date in the assessment,
evaluation and remediation of the Year 2000 matters plus any additional costs
that may be incurred are expected to be less than management's original estimate
of $100,000.
Market and Commodity Risk
The Company's major market risk exposure is in the pricing applicable to its
oil and natural gas production. Realized pricing is primarily driven by the
prevailing domestic price for oil and spot prices applicable to the Rocky
Mountain and Mid-Continent regions for its natural gas production.
Historically, prices received for oil and gas production have been volatile and
unpredictable. Pricing volatility is expected to continue. Natural gas price
realizations during 1999 and the first quarter of 2000, exclusive of any hedges,
ranged from a monthly low of $1.51 per Mcf to a monthly high of $2.70 per Mcf.
Oil prices, exclusive of any hedges, ranged from a monthly low of $10.70 per
barrel to a monthly high of $28.92 per barrel during 1999 and the first quarter
of 2000. Both oil and natural gas prices increased significantly from the first
quarter 1999 to the first quarter of 2000. A significant decline in the prices
of oil or natural gas could have a material adverse effect on the Company's
financial condition and results of operations.
From time to time, the Company enters into commodity derivative contracts and
fixed-price physical contracts to manage its exposure to oil and gas price
volatility. The Company uses futures contracts, swaps, options and fixed-price
physical contracts to hedge its commodity prices. Realized gains or losses from
price risk management activities are recognized in oil and gas sales revenues in
the period in which the associated production occurs.
As of March 31, 2000, the Company had entered into swap contracts for oil
(NYMEX based) for approximately 3,350 barrels of oil per day for the remainder
of 2000 at fixed prices ranging from $20.00 to $26.18 per barrel and 1,050
barrels of oil per day for 2001 at fixed prices ranging from $23.05 to $23.85
per barrel. Certain swap contracts for oil (NYMEX based) contain "knock-out"
provisions. If the average price of NYMEX WTI crude oil falls below the "knock-
out" price for the contract month, the swaps will be considered "knocked-out"
and no payment will be made to the Company for the applicable month. These
swaps are summarized in the table below. The overall weighted average hedged
price for the swap contracts is $21.88 per barrel for the remainder of 2000 and
$23.28 per barrel for 2001 (NYMEX based). The unrecognized losses on these
contracts totaled $3.6 million based on estimated market values at March 31,
2000.
As of March 31, 2000, the Company had entered into natural gas swap contracts
for approximately 28,300 MMBtu's per day for the remainder of 2000 at fixed
prices ranging from $2.06 to $2.92 per MMBtu and 10,000 MMBtu's per day for the
first quarter of 2001 at fixed prices ranging from $2.55 to $2.95 per MMBtu on
CIG index based swap contracts. The Company also has entered into physical
natural gas sale contracts for the delivery of approximately 12,200 MMBtu's per
day for the remainder of 2000 at prices ranging from $2.29 to $3.04 per MMBtu
and 2,500 MMBtu's per day for the first quarter of 2001 at prices ranging from
$2.67 to $3.08 per MMBtu. The weighted average daily volumes and prices for
these natural gas swaps and physical contracts are 40,600 MMBtu's per day at
$2.25 per MMBtu for the remainder of 2000 and 12,500 MMBtu's per day at $2.76
per MMBtu for the first quarter of 2001. The unrecognized losses on the swap
contracts totaled $3.2 million based on estimated market values at March 31,
2000.
20
<PAGE>
As of April 26, 2000, the Company was a party to the following fixed price
swap and physical arrangements summarized by quarter:
<TABLE>
<CAPTION>
Oil (NYMEX)
-------------------------------------------------------------------
SWAP SWAP "KNOCK-OUT" COMBINED
---------------- ------------------------------- ----------------
Daily Daily "Knock-out" Daily
Volume Volume Price Volume
Time Period (Bbl) $/Bbl (Bbl) $/Bbl $/Bbl (Bbl) $/Bbl
- ----------- ------- ------- ------- ------- ------------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
04/01/00 - 06/30/00........... 1,500 $21.31 2,000 $21.73 16.00-17.00 3,500 $21.55
07/01/00 - 09/30/00........... 2,000 22.81 1,500 21.40 16.00-17.00 3,500 22.21
10/01/00 - 12/31/00........... 750 21.56 2,350 22.00 16.00-17.00 3,100 21.89
01/01/01 - 03/31/01........... - - 1,500 23.41 17.00 1,500 23.41
04/01/01 - 06/30/01........... - - 1,250 23.29 17.00 1,250 23.29
07/01/01 - 09/30/01........... - - 750 23.13 17.00 750 23.13
10/01/01 - 12/31/01........... - - 750 23.13 17.00 750 23.13
</TABLE>
<TABLE>
<CAPTION>
Natural Gas
--------------------------------------------------------
CIG SWAP PHYSICAL COMBINED
---------------- ---------------- --------------------
Daily Daily Daily
Volume Volume Volume
Time Period (MMBtu) $/MMBtu (MMBtu) $/MMBtu (MMBtu) $/MMBtu
- ----------- ------ ------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
04/01/00 - 06/30/00.......... 36,600 $ 2.14 15,000 $ 2.36 51,600 $ 2.20
07/01/00 - 09/30/00.......... 31,700 2.12 15,000 2.36 46,700 2.20
10/01/00 - 12/31/00.......... 16,800 2.40 6,700 2.52 23,500 2.43
01/01/01 - 03/31/01.......... 10,000 2.73 2,500 2.87 12,500 2.76
</TABLE>
21
<PAGE>
Inflation and Changes in Prices
While certain costs are affected by the general level of inflation, factors
unique to the oil and natural gas industry result in independent price
fluctuations. Over the past five years, significant fluctuations have occurred
in oil and natural gas prices. Although it is particularly difficult to
estimate future prices of oil and natural gas, price fluctuations have had, and
will continue to have, a material effect on the Company.
The following table indicates the average oil and natural gas prices received
over the last five years and highlights the price fluctuations by quarter for
1999 and the first quarter of 2000. Average price computations exclude hedging
gains and losses and other nonrecurring items to provide comparability.
Average prices per Mcfe indicate the composite impact of changes in oil and
natural gas prices. Oil production is converted to natural gas equivalents at
the rate of one barrel per six Mcf.
Average Prices
------------------------------------------
Natural Equivalent
Oil Gas Mcf
--- --- ---
(Per Bbl) (Per Mcf) (Per Mcfe)
Annual
------
1995....... $16.43 $1.34 $1.73
1996....... 20.47 1.99 2.41
1997....... 19.54 2.25 2.55
1998....... 13.13 1.87 1.96
1999....... 17.71 2.21 2.40
Quarterly
---------
1999
----
First...... $11.65 $1.65 $1.72
Second..... 16.10 1.99 2.17
Third...... 19.90 2.48 2.68
Fourth..... 23.01 2.63 2.92
2000
----
First...... $27.30 $2.70 $3.13
22
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Information with respect to this item is incorporated by reference
from Notes to Consolidated Financial Statements in Part 1 of this
report.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
10.1.1 Standstill Agreement dated April 12, 2000 between Patina Oil &
Gas Corporation and Southwestern Eagle L.L.C. *
27 Financial Data Schedule. *
* Filed herewith
(b) No reports on Form 8-K were filled by Registrant during the quarter ended
March 31, 2000.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PATINA OIL & GAS CORPORATION
BY /s/ David J. Kornder
--------------------------------
David J. Kornder, Vice President and Chief
Financial Officer
April 27, 2000
24
<PAGE>
EXHIBIT 10.1.1
STANDSTILL AGREEMENT
This Standstill Agreement (the "Agreement") is dated as of April 1, 2000
between Patina Oil & Gas Corporation, a Delaware corporation (the "Company"),
and Southwestern Eagle L.L.C. (the "Stockholder").
WHEREAS, the Stockholder owns approximately 11.1% of the outstanding shares
of Common Stock (as defined herein), and the Stockholder desires to purchase
more shares of Voting Securities (as defined herein) of the Company from time to
time; and
WHEREAS, the Company is willing, under the terms and conditions set forth
herein, not to take any actions to prevent the Stockholder from purchasing
additional shares of Voting Securities of the Company as long as a certain level
of ownership is not exceeded by the Stockholder and its Affiliates (as defined
herein).
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and undertakings contained herein, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1 Definitions. (a) The following terms, as used herein, have
the following meanings:
"Affiliate" means, with respect to any specified Person, any other
Person which, directly or indirectly, controls, is controlled by or is under
direct or indirect common control with such specified Person. For the purposes
of this definition, "control" when used with respect to any Person means the
power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise, and the terms "affiliated," "controlling," and "controlled" have
meanings correlative to the foregoing.
"Agreed Percentage" means 19.9%.
"beneficial owner" has the meaning set forth in Rule 13d-3 under the
Exchange Act, and derivative terms such as "beneficially own" shall be given
corresponding meanings.
"Board of Directors" means the Board of Directors of the Company.
"Change of Control" means the occurrence of any of the following
events: (a) any Person or Group is or becomes the beneficial owner (as defined
herein, except that a Person shall be deemed
<PAGE>
to have "beneficial ownership" of all securities that such Person has the right
to acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of Voting Securities representing a
Voting Percentage of more than 50%; (b) the Company adopts a plan of liquidation
or sells, assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person; (c) the Company consolidates
with, or merges with or into, another Person, or any Person consolidates with,
or merges with or into, the Company, other than any such transaction in which,
immediately after such transaction, the beneficial owners (as defined herein,
except that a Person shall be deemed to have "beneficial ownership" of all
securities that such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time) of Voting Securities
of the Company immediately prior to the transaction are the beneficial owners
(as defined herein, except that a Person shall be deemed to have "beneficial
ownership" of all securities that such Person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of Voting Securities of the surviving or transferee
corporation, as applicable, representing a Voting Percentage of more than 50%;
or (d) during any consecutive two-year period, individuals who at the beginning
of such period constituted the Board of Directors (together with any new
directors whose election by the Board of Directors or whose nomination for
election by the stockholders of the Corporation was approved by a vote of a
majority of the directors then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors then in office.
"Common Stock" means shares of common stock, $.01 par value, of the
Company.
"Convertible Securities" means any securities convertible into or
exchangeable or exercisable for Common Stock.
"Convertible Voting Securities" means Convertible Securities and any
other securities convertible into or exchangeable or exercisable for Voting
Securities other than Common Stock.
"Current Shares" has the meaning set forth in Section 3.5.
"DGCL" has the meaning set forth in Section 2.5.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"Group" means a group within the meaning of Section 13(d)(3) of the
Exchange Act.
"HSR Act" has the meaning set forth in Section 2.3.
"Offer" has the meaning set forth in Section 4.3(c).
"Permitted Transferee" has the meaning set forth in Section 4.1.
2
<PAGE>
"Person" means an individual, corporation, partnership, limited
liability company, association, trust and any other entity or organization,
including a government or political subdivision or any agency or instrumentality
thereof.
"Restricted Securities" means (i) Common Stock, (ii) any other Voting
Securities or (iii) Convertible Voting Securities.
"Section 4.3(c) Event" has the meaning set forth in Section 4.3(c).
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Standstill Period" means the period beginning on the date of this
Agreement and ending on the earlier of (i) the date of a Change of Control, (ii)
the fourth anniversary of the date of this Agreement, or (iii) the occurrence of
a Section 4.3(c) Event.
"Stockholder Directors" has the meaning set forth in Section 4.2.
"Subsidiary" means, with respect to any Person, any corporation or
other entity (and any predecessor thereof) of which the securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are directly or
indirectly owned by such Person.
"Total Voting Power" means the aggregate number of votes that holders
of Voting Securities would be entitled to cast in respect of Voting Securities.
"Voting Percentage" means, with respect to any Person, the percentage
of the Total Voting Power beneficially owned by such Person.
"Voting Securities" means securities of the Company having the power
to vote generally for the election of directors of the Company and shall
include, without limitation, the Common Stock and 8.5% Convertible Pay-in-Kind
Preferred Stock. "Voting Securities" as used with respect to any other Person
means the capital stock or other equity interests of any class or kind having
the power to vote generally for the election of directors or other members of
the governing body of such Person.
(b) The following definitional provisions shall apply to this
Agreement:
(i) The words "hereof," "herein," and "hereunder" and words of
similar import, when used in this Agreement, shall refer to
this Agreement as a whole and not to any particular
provision of this Agreement.
(ii) The terms defined in the singular shall have a comparable
meaning when used in the plural, and vice versa.
3
<PAGE>
(iii) Reference herein to a specific Section shall refer to a
Section of this Agreement, unless the express context
otherwise requires.
(iv) Wherever the word "include," "includes," or "including" is
used in this Agreement, it shall be deemed to be followed
by the words "without limitation."
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Stockholder that:
SECTION 2.1 Corporate Existence and Power. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware and has all corporate powers required to carry on its business
as now conducted.
SECTION 2.2 Corporate Authorization; Binding Agreement. The execution,
delivery and performance of this Agreement by the Company is within the
Company's corporate powers and has been duly authorized by all necessary
corporate action on the part of the Company. This Agreement constitutes a legal
and binding agreement of the Company, enforceable against the Company in
accordance with its terms, except (a) as such enforcement is limited by
bankruptcy, insolvency and other similar laws affecting the enforcement of
creditors' rights generally and (b) for limitations imposed by general
principles of equity.
SECTION 2.3 Compliance. The execution, delivery and performance of this
Agreement by the Company requires no action by or in respect of, or filing with,
any governmental or non-governmental body, agency, official or authority other
than (a) compliance with any applicable requirements of the Exchange Act, (b)
compliance with the applicable requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), and (c) other filings,
notifications and consents that are immaterial to the consummation of the
transactions contemplated hereby.
SECTION 2.4 Non-contravention. Assuming compliance with the matters
referred to in Section 2.3, the execution, delivery and performance of this
Agreement by the Company do not and will not (a) violate the certificate of
incorporation or bylaws of the Company, (b) violate any applicable law, rule,
regulation, judgment, injunction, order or decree binding upon the Company,
other than violations that would be immaterial to the Company or the
Stockholder, or (c) constitute a default under any agreement or other instrument
binding upon the Company.
SECTION 2.5 State Takeover Statutes. The Board of Directors of the Company,
at a meeting duly called (or for which notice was duly waived by all directors
of the Company) and held on April 11, 2000, has approved the acquisition by the
Stockholder of up to the Agreed Percentage of Voting Securities of the Company
subject to the terms of this Agreement, and such approval by the Board of
Directors constitutes approval of the transactions contemplated by this
Agreement pursuant to which the stockholder may become an interested stockholder
under the
4
<PAGE>
provisions of Section 203 of the Delaware General Corporation Law (the "DGCL"),
and constitutes all actions necessary to ensure that the restrictions contained
in Section 203 of the DGCL will not apply to Stockholder in connection with or
as a result of such transactions. To the Company's knowledge, no other state
takeover statute is applicable to the transactions contemplated by this
Agreement.
SECTION 2.6 Capitalization. As of the date of this Agreement, the
authorized capital stock of the Company consists of (i) 100,000,000 shares of
Common Stock, of which 16,283,120 shares are issued and outstanding; and (ii)
5,000,000 shares of preferred stock of which 2,000,000 shares are designated as
8.5% Convertible Pay-in-Kind Preferred Stock (the "Convertible Preferred
Stock"), of which 1,818,511 shares are issued and outstanding. The Convertible
Preferred Stock is convertible at the option of the holder thereof into
4,785,594 shares of Common Stock. All of the presently outstanding shares of
capital stock of the Company have been duly and validly authorized and issued
and are fully paid and non-assessable. The relative rights, preferences and
restrictions relating to the Common Stock and the Convertible Preferred Stock
are set forth in the Company's Certificate of Incorporation, as amended, and the
Certificate of Designation for the Convertible Preferred Stock, as amended and
corrected. In addition, the Company has outstanding 2,919,451 of its $12.50
Warrants exercisable for the purchase of 2,919,451 shares of the Common Stock,
such shares of Common Stock being reserved by the Company for exercise of the
$12.50 Warrants.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
The Stockholder represents and warrants to the Company that:
SECTION 3.1 Existence and Power. The Stockholder is a limited liability
company duly organized, validly existing and in good standing under the laws of
its jurisdiction of organization.
SECTION 3.2 Authorization. The execution, delivery and performance of this
Agreement by the Stockholder are within the Stockholder's powers and have been
duly authorized by all necessary action on the part of the Stockholder. This
Agreement constitutes a legal, valid and binding agreement of the Stockholder,
enforceable against the Stockholder in accordance with its terms, except (a) as
such enforcement is limited by bankruptcy, insolvency and other similar laws
effecting the enforcement of creditors' rights generally and (b) for limitations
imposed by general principles of equity.
SECTION 3.3 Compliance. The execution, delivery and performance of this
Agreement by the Stockholder requires no action by or in respect of, or filing
with, any governmental or non-governmental body, agency or official or any other
Person other than (a) compliance with any applicable requirements of the
Exchange Act, (b) compliance with the applicable requirements of the HSR Act,
and (c) other filings or notifications that are immaterial to the consummation
of the transactions contemplated hereby.
5
<PAGE>
SECTION 3.4 Non-contravention. Assuming compliance with the matters
referred to in Section 3.3, the execution, delivery and performance of this
Agreement by the Stockholder does not and will not (a) violate the internal
governance documents of the Stockholder, (b) violate any applicable law, rule,
regulation, judgment, injunction, order or decree binding upon the Stockholder,
except for any such violations which would be immaterial to the Company or the
Stockholder, or (c) constitute a default under any agreement or other instrument
binding upon the Stockholder .
SECTION 3.5 Current Ownership. The Stockholder is the record and beneficial
owner of 1,775,900 shares of Common Stock (the "Current Shares"). Except for the
Current Shares, neither the Stockholder nor any of its Affiliates beneficially
owns Restricted Securities.
ARTICLE 4
COVENANTS OF THE STOCKHOLDER
The Stockholder agrees that:
SECTION 4.1 Sale or Transfer of Restricted Securities. During the
Standstill Period, the Stockholder will not, and will not permit its Affiliates
to, directly or indirectly, sell, pledge, encumber or otherwise transfer, or
agree to sell, pledge, encumber or otherwise transfer, any Restricted
Securities; provided that the Stockholder and its Affiliates may sell, pledge,
encumber or otherwise transfer Restricted Securities (a) in an amount (whether
in one or more transactions) that would not exceed twice the amount permitted to
be sold by affiliates (within the meaning of Rule 144) of the Company under
paragraph (e)(1) of Rule 144 in effect as of the date of this Agreement;
provided that this clause (a) may be utilized by the Stockholder and its
Affiliates only if the Stockholder and its Affiliates in good faith have no
reason to believe that any transferee of such Restricted Securities would not be
a Permitted Transferee, (b) to a commercial bank or other financial institution
in connection with a bona fide financing transaction by the Stockholder;
provided that such bank or other financial institution agrees to comply with the
transfer, voting and other restrictions set forth in this Agreement with respect
to such stock, and (c) to Permitted Transferees. A "Permitted Transferee" is a
Person who, after giving effect to such sale, pledge, encumbrance or transfer,
would, together with its Affiliates and with any members of a Group in which
such Person or any of its Affiliates is a member, beneficially own Restricted
Securities representing less than 5% of the Total Voting Power and less than 5%
of the aggregate number of outstanding shares of Common Stock (assuming, in each
case, the conversion, exercise or exchange of all Convertible Voting Securities
beneficially owned by such Person, its Affiliates and such Group members,
whether or not such Convertible Voting Securities are convertible, exercisable
or exchangeable within 60 days, and otherwise making all beneficial ownership
calculations consistent with Rule 13d-3 of the Exchange Act).
SECTION 4.2 Acquisition of Voting Securities. Subject to the restrictions
set forth herein, the Stockholder may acquire additional Voting Securities of
the Company and the Company will not take any action to prevent such acquisition
or otherwise limit or restrict the Stockholder's rights with respect thereto.
During the Standstill Period, and notwithstanding anything in this Agreement to
the contrary, without the prior written consent of the Board of
6
<PAGE>
Directors specifically expressed in a resolution adopted by a majority of the
directors of the Company who are not Affiliates of the Stockholder or members of
a Group in which the Stockholder or any of its Affiliates is a member
("Stockholder Directors"), the Stockholder will not, and will not permit its
Affiliates to, purchase or otherwise acquire, directly or indirectly, or agree
or offer to purchase or otherwise acquire, any Restricted Securities if, as a
result thereof, the Stockholder, together with its Affiliates and with any
members of a Group in which the Stockholder or any of its Affiliates is a
member, would, in the aggregate, beneficially own Voting Securities representing
more than the Agreed Percentage of the Total Voting Power (assuming the
conversion, exercise or exchange of all Convertible Voting Securities
beneficially owned by the Stockholder, its Affiliates and such Group members and
making all beneficial ownership calculations consistent with Rule 13d-3 of the
Exchange Act).
SECTION 4.3 Standstill. (a) During the Standstill Period, the Stockholder
agrees that, without the prior written consent of the Board of Directors
specifically expressed in a resolution adopted by a majority of the directors of
the Company who are not Stockholder Directors, the Stockholder will not and will
not permit its Affiliates to:
(i) initiate or propose any matter for a vote of the
stockholders of the Company or "solicit," or become a "participant,"
directly or indirectly, in any "solicitation" of proxies (as such terms are
defined under the Exchange Act) from any holder of Voting Securities in
connection with any vote or other action on any matter or agree or announce
its intention to vote with any Person undertaking a "solicitation" or seek
to advise, encourage or influence any Person with respect to the voting of
any Voting Security;
(ii) seek, solicit, propose (in a manner that is intended to
require, or would reasonably be expected to require, public disclosure) or
make any statement with respect to, or otherwise participate in or support,
any merger, consolidation, business combination, tender or exchange offer,
sale or purchase of assets, sale or purchase of securities (except as and
to the extent specifically permitted by this Section 4.3), dissolution,
liquidation, restructuring, recapitalization or similar transactions of or
involving the Company or any of its Subsidiaries;
(iii) form, join or in any way participate in a Group with
respect to any Restricted Securities;
(iv) grant any "proxies" (as defined under the Exchange Act) with
respect to any Voting Securities to any Person (except as recommended by
the Board of Directors of the Company) or deposit any Voting Securities or
Convertible Voting Securities in a voting trust or enter into any other
arrangement or agreement with respect to the voting thereof except as set
forth in Section 4.4;
(v) otherwise act, alone or in concert with others, to control
or seek to control or influence or seek to influence the management, Board
of Directors or policies of the Company, except that engaging in private
meetings with management of the Company in regard to the day-to-day
operations and the ordinary course of business of the Company shall not be
prohibited hereby;
7
<PAGE>
(vi) seek, alone or in concert with others, representation on the
Board of Directors or seek the removal of any member of the Board of
Directors or a change in the size or composition of the Board of Directors;
(vii) make any publicly disclosed proposal or enter into any
discussion regarding any of the foregoing;
(viii) make any proposal, statement or inquiry, or disclose any
intention, plan or arrangement (whether written or oral), inconsistent with
the foregoing, or make or disclose any request to amend, waive or terminate
any provision of this Article 4;
(ix) have any discussions or communications with, or enter into
any arrangements, understandings or agreements (whether written or oral)
with, or advise, finance, assist or encourage, any other Person in
connection with any of the foregoing; or
(x) take any action challenging the validity or enforceability of
any provisions of this Article IV.
(b) Nothing contained in this Section shall be deemed in any way to
prohibit or limit any transactions in the ordinary course of business between
the Company and its Subsidiaries, on the one hand, and the Stockholder and its
Affiliates, on the other hand.
(c) The Standstill Period shall terminate (i) if any person shall
commence and not withdraw a bona fide unsolicited tender or exchange offer that
if successful would result in a Change of Control (an "Offer"), unless within 10
business days after the commencement of such Offer, the Company shall have
publicly recommended that the Offer not be accepted, (ii) upon the commencement
of any transaction that is a "Rule 13e-3 transaction," as such term is defined
in Rule 13e-3(a)(3) promulgated under the Exchange Act or (iii) upon the
commencement of any transaction by any holder of 5% or more of the Total Voting
Power, the consummation of which would result in the de-registration of the
Company's Common Stock under the Exchange Act. The termination of the
Standstill Period pursuant to this Section 4.3(c) is referred to herein as a
"Section 4.3(c) Event."
SECTION 4.4 Presentation of Matters to the Board of Directors.
Notwithstanding anything to the contrary in this Agreement, whenever pursuant to
the terms hereof the Stockholder is permitted to take any action with the prior
consent of the Board of Directors, the Stockholder shall be entitled to present
the matter to, and discuss the matter with, the Board of Directors prior to
receiving such consent without being deemed to have violated any of the
restrictions set forth in this Agreement.
SECTION 4.5 Voting Arrangements. During the Standstill Period, the
Stockholder shall vote and cause to be voted all Voting Securities owned by the
Stockholder or any Affiliate of the Stockholder on all matters, other than
nominees to the Board of Directors whose nominations are made by the Board of
Directors, submitted to the holders of Voting Securities in accordance with the
recommendations of the Company's Board of Directors. The Stockholder shall cause
all Voting Securities owned by the Stockholder or any Affiliate of the
Stockholder to be
8
<PAGE>
represented, in person or by proxy, at all meetings of holders of Voting
Securities of which the Stockholder has actual notice, so that such Voting
Securities may be counted for the purpose of determining the presence of a
quorum at such meetings.
SECTION 4.6 Suspension of Obligations. If at any time during the Standstill
Period the Stockholder and its Affiliates, in compliance with this Agreement, no
longer beneficially own 5% or more of the outstanding Restricted Securities,
then notwithstanding any provision in this Agreement to the contrary, during the
period beginning on the date of such occurrence and ending on the date on which
the Stockholder and its Affiliates again beneficially own 5% or more of the
outstanding Restricted Securities, the Stockholder shall not be required to
comply with the covenants and agreements set forth in Article 4 of this
Agreement.
ARTICLE 5
MISCELLANEOUS
SECTION 5.1 Notices. All notices, requests and other communications to any
party hereunder shall be in writing and shall be deemed duly given, effective
(a) three business days later, if sent by registered or certified mail, return
receipt requested, postage prepaid, (b) when sent by telecopier or fax, provided
that the telecopy or fax is promptly confirmed by telephone confirmation
thereof, (c) when served, if delivered personally to the intended recipient, and
(d) one business day later, if sent by overnight delivery via a national courier
service, and in each case, addressed,
if to the Stockholder, to:
Southwestern Eagle L.L.C.
1675 Larimer Street, Suite 820
Denver, Colorado 80202
Attention: James W. Williams, Jr.
Fax:
with a copy to:
M. Walker Baus
LeCorgne, Livaudais & Baus
Suite 210
203 Carondelet Street
New Orleans, Louisiana 70130
Fax: (504) 523-5884
9
<PAGE>
if to the Company, to:
Patina Oil & Gas Corporation
380 Madison Avenue
11th Floor
New York, New York 10017
Attn: Thomas J. Edelman
Fax: (212) 888-6877
with a copy to:
Patina Oil & Gas Corporation
1625 Broadway, Suite 2000
Denver, Colorado 80202
Attn: Jay W. Decker
Fax: (303) 389-3680
Any party may change the address to which notices or other communications
hereunder are to be delivered by giving the other party notice in the manner
herein set forth.
SECTION 5.2 Amendments and Waivers. Any provision of this Agreement may
be amended or waived if, but only if, such amendment or waiver is in writing and
is signed, in the case of an amendment, by each party to this Agreement, or in
the case of a waiver, by the party against whom the waiver is to be effective.
No failure or delay by any party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies herein provided
shall be cumulative.
SECTION 5.3 Expenses. All costs and expenses incurred in connection with
this Agreement shall be paid by the party incurring such cost or expense.
SECTION 5.4 Assignment. The rights and obligations of the parties hereunder
cannot be assigned or delegated.
SECTION 5.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the law of the State of Delaware, without regard to
the conflicts of law rules of such state.
SECTION 5.6 Counterparts; Third Party Beneficiaries. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received a counterpart hereof signed by the other
10
<PAGE>
party hereto. No provision of this Agreement is intended to confer upon any
Person other than the parties hereto any rights or remedies hereunder.
SECTION 5.7 Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter of this
Agreement and supersedes all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter of this
Agreement.
SECTION 5.8 Captions. The captions herein are included for convenience of
reference only and shall be ignored in the construction or interpretation
hereof.
SECTION 5.9 Severability. Except as otherwise provided in the last sentence
of this Section 5.9, the provisions of this Agreement shall be deemed severable
and the invalidity or unenforceability of any provision shall not affect the
validity or enforceability of the other provisions hereof. Except as otherwise
provided in the last sentence of this Section 5.9, if any provision of this
Agreement, or the application thereof to any Person or any circumstance, is
invalid or unenforceable, (a) a suitable and equitable provision shall be
substituted therefor in order to carry out, so far as may be valid and
enforceable, the intent and purpose of such invalid or unenforceable provision
and (b) the remainder of this Agreement and the application of such provision to
other Persons or circumstances shall not be affected by such invalidity or
unenforceability, nor shall not be affected by such invalidity or
unenforceability, nor shall such invalidity or unenforceability affect the
validity or enforceability of such provision, or the application thereof, in any
other jurisdiction. Notwithstanding anything in this Section 5.9 to the
contrary, if any provision of Article 4 is determined by any court of competent
jurisdiction to be invalid or unenforceable, the provisions of Section 2.5 shall
be automatically void ab initio and shall have no force or effect.
-- ------
SECTION 5.10 Specific Performance. The parties hereto agree that the remedy
at law for any breach of this Agreement will be inadequate and that any party by
whom this Agreement is enforceable shall be entitled to specific performance in
addition to any other appropriate relief or remedy. Such party may, in its sole
discretion, apply to any court of competent jurisdiction for specific
performance or injunctive or such other relief as such court may deem just and
proper in order to enforce this Agreement or prevent any violation hereof and,
to the extent permitted by applicable law, each party waives any objection to
the imposition of such relief.
SECTION 5.11 Legends. (a) The Stockholder agrees that all Restricted
Securities that are beneficially owned now or in the future during the
Standstill Period by the Stockholder or any of its Affiliates (including without
limitation the Current Shares) shall be in certificated form. The Stockholder
shall promptly deliver all certificates representing such Restricted Securities
to the Company so that the Company may place the following legend on such
certificates:
11
<PAGE>
"The securities represented hereby are subject to certain restrictions
under the terms of a Standstill Agreement dated as of April 1, 2000,
as amended from time to time, between Patina Oil & Gas Corporation and
Southwestern Eagle L.L.C. and may not be offered, sold, transferred or
otherwise disposed of except in accordance with the terms of such
Standstill Agreement."
(b) The Company agrees that, at the request of the Stockholder, it will
remove the above legend from all certificates at the time after which the
restrictions under this Agreement are no longer applicable. If the Stockholder
transfers any Restricted Securities in accordance with this Agreement, the
Company will issue to such transferee a certificate representing such
transferred Restricted Securities without the legend contemplated above.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
PATINA OIL & GAS CORPORATION
By: /s/ Thomas J. Edelman
----------------------------------------
Name: Thomas J. Edelman
Title: Chief Executive Officer
SOUTHWESTERN EAGLE L.L.C.
By: /s/ James W. Williams, Jr.
----------------------------------------
Name: James W. Williams, Jr.
Title: President
13
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 263
<SECURITIES> 0
<RECEIVABLES> 15,363
<ALLOWANCES> (400)
<INVENTORY> 3,782
<CURRENT-ASSETS> 19,008
<PP&E> 634,240
<DEPRECIATION> 326,214
<TOTAL-ASSETS> 327,034
<CURRENT-LIABILITIES> 18,279
<BONDS> 134,000
0
18
<COMMON> 163
<OTHER-SE> 159,798
<TOTAL-LIABILITY-AND-EQUITY> 327,034
<SALES> 31,274
<TOTAL-REVENUES> 31,576
<CGS> 15,864
<TOTAL-COSTS> 17,503
<OTHER-EXPENSES> 104
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,476
<INCOME-PRETAX> 11,493
<INCOME-TAX> 2,299
<INCOME-CONTINUING> 9,194
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,194
<EPS-BASIC> .47
<EPS-DILUTED> .40
</TABLE>
